Correlation Between Alarm Holdings and Cognex

Can any of the company-specific risk be diversified away by investing in both Alarm Holdings and Cognex at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Alarm Holdings and Cognex into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alarm Holdings and Cognex, you can compare the effects of market volatilities on Alarm Holdings and Cognex and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Alarm Holdings with a short position of Cognex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alarm Holdings and Cognex.

Diversification Opportunities for Alarm Holdings and Cognex

0.07

Correlation Coefficient

Alarm Holdings  Cognex

Significant diversification

The 3 months correlation between Alarm and Cognex is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Alarm Holdings and Cognex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognex and Alarm Holdings is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Alarm Holdings are associated (or correlated) with Cognex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cognex has no effect on the direction of Alarm Holdings i.e., Alarm Holdings and Cognex go up and down completely randomly.

Pair Corralation between Alarm Holdings and Cognex

Given the investment horizon of 90 days Alarm Holdings is expected to generate 35.63 times less return on investment than Cognex. But when comparing it to its historical volatility, Alarm Holdings is 1.96 times less risky than Cognex. It trades about 0.01 of its potential returns per unit of risk. Cognex is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,792  in Cognex on May 4, 2025 and sell it today you would earn a total of  1,255  from holding Cognex or generate 44.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Alarm Holdings  vs.  Cognex

Alarm Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alarm Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Alarm Holdings is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Cognex

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cognex are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Cognex showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alarm Holdings and Cognex

The main advantage of trading using opposite Alarm Holdings and Cognex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alarm Holdings position performs unexpectedly, Cognex can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Cognex will offset losses from the drop in Cognex's long position.

The idea behind Alarm Holdings and Cognex pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.